Using the TI-83 Calculator Financial Functions

Calculator examples

prepared by Pamela Peterson Drake

Examples

  1. Calculating a future value
  2. Calculating the present value of an annuity
  3. Calculating the value of a bond
  4. Valuing a series of uneven cash flows
  5. Calculating the yield to maturity on a bond

  1. Calculating a future value

  2. Problem:

    Suppose you invest $10,000 today in an account that pays 5% interest, compounded annually, how much will you have in the account at the end of 6 years?

    Solution: $13,401

    Next to ...

    Strike ...

     
      2ndFINANCE 
     ENTER  
    N=6  
       

    I%=

    5 the interest rate is specified as a whole number
       
    PV=(-)10000  
       
    PMT=0  
     

      
    FVALPHASOLVE this displays the FV next to “FV”

    Notes:


  3. Calculating the present value of an annuity

  4. Problem:

    Suppose you are promised annual payments of $1,500 each year for the next five years, with the first cash flow occurring in one year. If the interest rate is 4%, what is this stream of cash flows worth today?

    Solution: $6,678

    Next to ...

    Strike ...

      
     2nd FINANCE
     ENTER   
        
    N= 5    
         
    I%= 4   The interest rate is specified as a whole number

        
         
    PMT= 1500    
         
    PV=ALPHA SOLVEThis displays the PV next to “PV=”

    Notes:


  5. Calculating the value of a bond

  6. Problem:

    Calculate the value of a bond with a maturity value of $1,000, a 5% coupon (paid semi-annually), five years remaining to maturity, and is priced to yield 8%.

    Solution: $878.34

    Note:
    FV = 1,000 (lump-sum at maturity)
    CF = $25 (one half of 5% of $1,000)
    N = 10 (10 six-month periods remaining)
    i = 4% (six-month basis, 8%/2)

    Next to ... Strike ...    
      2nd FINANCE  
        
    1:TVM Solver… ENTER   
    N= 10   
         
    I%= 4   The interest rate is specified as a whole number
         
        
    PMT= 25   Use the arrows to go to “PMT=”
         
    FV= 1000   
        
        Use the arrows to go to “PV=”
    PV= ALPHA SOLVE This results in the PV displayed as a negative number

    Notes:


  7. Valuing a series of uneven cash flows

  8. Problem:

    Consider the following cash flows,

    CF0 = -$10,000
    CF1 = +$5,000
    CF2 = $0
    CF3 = +$2,000
    CF4 = +$5,000

    1. What is the internal rate of return for this set of cash flows?
    2. If the discount rate is 5%, what is the net present value corresponding to these cash flows?

    Solution:

    Next to ...

    Strike ...

     
      2nd { This begins the list
      5000 , This is the first entry in the list
      0, This is the second entry in the list
      2000 , This is the third entry in the list
      5000 , This is the fourth entry in the list
      }  This ends the list
     STOè  This stores the list
      2nd L1 This names the list “L1”
     ENTER  This results in a display of the items in the list

      2nd FINANCE  
    Repeat for a total of seven times until you reach irr(
    7:irr( ENTER   
      (-)10000 This inputs the first entry, cash flow at time 0 (the present)
      ,   
      2nd L1 Uses the same list (L1) as used for IRR
      )   
      ALPHA SOLVE This results in the IRR displayed on the screen
      2nd FINANCE  
    Repeat for a total of six times until you reach npv(
    8:npv(ENTER  
     5 , This inputs the first entry in the NPV function, which is the interest rate specified as a whole number (that is, 5% is input as 5).
      (-)10000 ,This inputs the second entry in the NPV function
      2nd L1 This inputs the third entry in the NPV function
      )   
     ALPHA SOLVE This results in the NPV displayed on the screen

    Note: once you enter the list and store it, you can use it for both the NPV and the IRR calculations.


  9. Calculating the yield to maturity on a bond

  10. Problem:

    Calculate the yield to maturity of a bond with a maturity value of $1,000, a 5% coupon (paid semi-annually), ten years remaining to maturity, and is priced $857.

    Solution: 7.01%

    Note:

    FV = $1,000 (lump-sum at maturity)
    CF = $25 (one half of 5% of $1,000)
    N = 20 (20 six-month periods remaining)
    PV = $857

    Next to ...Strike ...   
      2nd FINANCE  
      ENTER    
    N= 20    
         
         
    PV= (-)857    
         
    PMT= 25    
         
    FV= 1000    
         
         
         
    I%= ALPHASOLVE This produces the semi-annual rate;take this value and multiply it by 2


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